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Research
Cipla - Revenue growth to maintain momentum - Centrum
Posted On : 2013-08-19 21:36:07( TIMEZONE : IST )
We reiterate Buy rating for Cipla with a revised target price to Rs585 from Rs526 based on 22x FY15E EPS of Rs26.6, an upside of 39.4% over the CMP. This was due to good performance during the quarter. The company's results for Q1FY14 were above our expectations. It performed well on both domestic and export fronts despite domestic slowdown. It completed the acquisition of Cipla Medpro, S. Africa for Rs27.07bn to gain access to the lucrative S. African market. We have enhanced our EPS estimates by 1% for FY14 and 2% for FY15 due to higher than expected growth.
Strong revenue growth: Cipla reported 26%YoY growth in revenues to Rs24.64bn from Rs19.63bn due to good growth in domestic and export markets. We expect the global business to grow rapidly due to the introduction of new products and inhalers. Domestic revenues grew by 17%YoY despite the domestic slowdown. Cipla's formulation exports grew 28%YoY to Rs10.34bn from Rs8.10bn.
Margin improvement expected: Cipla's margin declined by 20bps to 27.4% from 27.6%. We expect margin improvement from Q3 onwards due to expected normalcy in the domestic business after the application of NPPP provisions. Cipla's domestic margin is likely to improve with higher capacity utilisation at Indore SEZ. Its margins are expected to go up due to sharp depreciation of the rupee.
Building future pipeline for global market: The company filed 6 ANDAs with US FDA in FY13 and 23 ANDAs are under registration. Cipla has received 20 products back from its partners and is likely to market them on its own. The company has commercialised 47 products through its partners in the US. It has developed 10 inhalers of which four have been launched in Europe. All these developments will improve sales and profitability.
Major risks & valuations: Cipla faces major risks from regulatory agencies on non-compliance of its manufacturing facilities. It also faces risks from uncertainties over NPPP in the domestic market. At the CMP of Rs420, the stock trades at 19.1x FY14E EPS of Rs22.0 and 15.8x FY15E EPS of Rs26.6. We maintain Buy rating with a revised target price of Rs585 based on 22x FY15E EPS of Rs26.6, an upside of 39.4% over the CMP.
